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Legislators Voice Their Opinions about Potential Xbox 360 Ban

As the possibility of an Xbox 360 ban over the Microsoft vs. Motorola Mobility legal case looms closer, several Congressmen have weighed in on the matter.

The case, in which Motorola seeks a limited exclusion order on the XBox 360 due to perceived patent violations (which were upheldby an ITC judge in April), threatens to enact a nationwide ban on the gaming console.

Representative Darrell Issa of California (R) wrote in support of Microsoft:

An exclusion order in this matter is an inappropriate remedy where both parties to the investigation are U.S. based companies. As I have stated in the past, I do not believe it is appropriate for the ITC to issue an exclusion order where both the claimant and respondent companies are American-based, and the ultimate goal of the moving party is to obtain monetary damages and not actual injunctive relief against the respondent.

This opinion states that it is inappropriate for one company to seek a ban on a product when both companies are U.S.-based, and the primary motivating factor for the ban is not to prevent a product from reaching the market but to force one company to pay the other in damages.

Issa went on to talk about the kind of violation that Microsoft is alleged to have committed:

An exclusion order based on alleged infringement of Standard Essential Patents creates a dangerous precedent that can harm innovation and the American economy. A standard essential patent (SEP) is a patent that discloses and claims one or more inventions that are required in order to practice a given industry standard. In return for disclosing these patents, the owners may receive compensation in the form of licensing fees or in some instances a reasonable royalty.

In this statement, Issa says that it is dangerous to have companies like Motorola suing companies like Microsoft for perusal of a standard essential patent, which is a type of patent that is necessary for other companies to borrow in order to operate at the industry standard level. Typically, companies simply pay licensing fees or royalty rates for use of these patents while operating within a standard, which was what Microsoft was doing in the situation that resulted in this case. However, Motorola requested a specific kind of reimbursement for use of their standard essential patents from Microsoft—specifically, 2.25% royalties on the end price of all standard-using products—which Microsoft refused, causing Motorola to claim that Microsoft is unfairly using its standard essential patents. In Issa’s opinion, punishing Microsoft in this kind of situation is setting a dangerous precedent for the future.

Representative Sue Myrick of North Carolina (R) argued that an exclusion order against the Xbox 360 would be harmful economically.

An exclusion order against the Xbox 360 console threatens high-paying jobs and continued economic growth in the state of North Carolina. The Microsoft Xbox 360 is one of three competing game consoles that form the core of a vibrant U.S. entertainment software industry. The entertainment software industry is a major economic driver, which directly or indirectly employs thousands in the U.S. In North Carolina, the industry accounts for approximately 2,500 jobs and $102,000 in direct and indirect compensation per employee. In my district, which includes Charlotte, Microsoft employs approximately 1,500 individuals. An exclusion order would close the U.S. market to this innovative and highly popular product and directly threaten the jobs that are built around it.

An exclusion order banning the importation of Xbox 360 gaming consoles into the U.S. harms not only Microsoft, but a variety of companies involved in manufacturing each game platform. A broad set of companies is invested in each game platform, including game developers, content providers and manufacturers, and all depend heavily on the sale of the Xbox. Retailers also face losing a major retail item in their stores which would have a detrimental impact on sales. Additionally, all of these businesses rely on competition among gaming platforms to grow overall demand for consoles and games so banning the Xbox console would reduce competition as well as opportunities for growth and innovation for companies in this market.

In contrast to these two opinions, several Representatives from Illinois wrote in support of an exclusion order, although they never explicitly stated this.

We strongly supoport vigorous intellectual property right protection, including injunctive and exclusionary relief, that appropriates and reasonably rewards past innovation and encourages new development, which has been and must continue to be the foundation of this country’s economic success. Indeed, to maintain a level playing field in circumstances in which entities are found to be infringing U.S. intellectual property rights but will not provide reasonable compensation to the owner and developer of these rirhgts, injunctive and exclusionary relief must be available and rigorously enforced. Denying legitimate patent protection adversely affects domestic commerce and business in a very meaningful way by preventing domestic companies from protecting their innovations, and thus discouraging domestic companies from investing in future innovation.

Analysis: Google’s crusade to take as much legal ground as they possibly can with the recent acquisition of Motorola Mobility has drawn the ire of some. Besides Microsoft, Motorola has also tried to get import bans on Apple products such as the iPhone and iPad. However, multiple companies like Intel, Nokia, Cisco, Hewlett-Packard, and even public institutions such as the Federal Trade Commission have risen up against import bans over the use of FRAND-pledged standard essential patents. A FRAND pledge is when a company assures that it will license its patent in a “fair, reasonable, and non-discriminatory” way towards companies operating within an industry standard. Now, members of Congress are starting to join the fray, taking sides on this momentous legal quarrel.

It’s an open question, though. To what extent should companies have financial compensation control over their SEPs? Additionally, should import bans be a tool that these companies could use in order to “bully” other firms into paying into a preferred form of royalties? Several individuals, like Representative Issa, argue no rather poignantly. Industry standards are very important to the competitive health of the technological sector, and the ability for a company to seek a limited exclusion order over non-preferred financial compliance with regards to an SEP could do significant damage to the legal security of the industry standard format. In other words, it seems likely that, if Google gets what they want from this case, then cross-company innovation could receive a very, very serious blow, which is bad for the consumer.

On the other hand, I don’t think all of the opposition’s opinions are exceptionally poignant. Sue Myrick, for example, spends her time arguing about the financial ramifications of an import ban, but, like Issa said, it’s basically an open secret that the point of the exclusion order is not to get rid of the Xbox but to force Microsoft to comply with Motorola’s royalty demands. You can argue that the structure of the video game industry is dangerously reliant on several underlying products because of the console system, but again, it’s unlikely that any serious long-term damage will occur to the industry over the result of this exclusion order. Still, it’s an important reminder for companies in the industry that maybe it’s a little dangerous to keep all of their eggs in one basket.

Ultimately, I think the ITC’s eventual ruling on this case will be very interesting to see, and the impact from this ruling will affect a great deal of companies beyond just Microsoft and Google.

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